Industrial Market Analysis

Transcription

1 Industrial Market Analysis Bi-Annual Western Cape & KwaZulu-Natal

2 Contents Highlights 1 Summary 3 Climate 4 Supply 6 Featured Industrial Developments 8 Demand 9 Vacancies 10 Rental Rates 11 Prognosis 13 Industrial Market Analysis June Western Cape & KwaZulu-Natal Colliers International South Africa

3 Highlights Declining vacancies contribute to rentals showing stable growth. Western Cape leads the way with strongest growth of stand value 8% and market rental 7%. Durban show reasonable growth, 3% on stand value and no real growth on rental value. Western Cape economy has shown strong resilience to the recessionary conditions that we currently face, whilst Durban struggles to show real growth. Industrial Market Analysis June Western Cape & KwaZulu-Natal Colliers International South Africa

4 Brexit Analysis SA s reliance on foreign money to finance the shortfall on its current account makes it the most vulnerable in sub-saharan African to fallout from the UK s vote to quit the EU, Moody s Investors Service said. SA s current account deficit leaves it vulnerable to short-term capital outflows amid changes in investors risk perception and appetite, Moody s vice-president and senior analyst Zuzana Brixiova wrote in a report released on early July ). The extent of SA s integration into global financial markets including its investment and financial links with the UK, means it is the region s most exposed sovereign to the immediate financial sector fallout from Brexit. Africa s most industrialized economy depends on capital inflows to fund the shortfall on its current account, the broadest measure of trade in goods and services, putting it at the mercy of global investor sentiment. The deficit widened to 5% of GDP in the three months through March. SA s currency had initially underperformed most emerging markets after the Brexit vote, reflecting the economy s dependence on investors money and close links with the UK, Moody s said. More global liquidity due to reduced chances of a US rate hike and an expansionary monetary stance by the Bank of England could increase the likelihood of the rand stabilising, the rating agency said. While SA would avoid slipping into a recession this year for the first time since 2009, and recovery would be affected adversely any increased risk aversion and reduced investor appetite towards emerging markets, Brixiova said. The IMF cut its growth forecast for SA s economy to 0,1% from 0,6%. Low commodity prices and the worse drought in more than a century in SA contributed to a 1,2% contraction in GDP in the first quarter. Moody s left the country s credit rating at two levels above noninvestment grade in May. Another view is that Brexit should be positive for emerging markets which benefits from increased liquidity as global capital is forced to search for higher yields. It is interesting to note that approximately $12 trillion is sitting in negative yielding bonds. For the risk averse paying a bank to hold your capital is better than the risk of losing it all. Offshore investors bought government bonds of R14,7 billion during June as opposed to outflows of R6,8 billion in the same period last year. Source: Bloomberg Industrial Market Analysis June Gauteng Colliers International South Africa

5 Summary Colliers International South Africa s April Industrial Market Analysis provides a brief overview of the key factors impacting this sector in the Western Cape and KwaZulu-Natal over the last six months, as well as the future market prognosis for the respective regions. Western Cape KwaZulu-Natal Industrial Market Analysis June Western Cape & KwaZulu-Natal Colliers International South Africa

6 Macro-Economic Climate Inflation (past 6 months) A major concern for Industrial sector is the slow-down of trade and economic activity. Most major landlords are developing premises based on tenant demand as opposed to speculatively. With electricity supply constraints improving and access routes being provided by a local government the potential for growth increases but market conditions still hold back significant improvement. Certain nodes are rapidly gaining popularity. Linbro Park, East Rand (Airport node) and Midrand (Waterfall) remain firm favourites in an otherwise flat market. The West Rand remains uninspiring, and shows very little signs of improvement. Economic Growth (GDP) 1,5% ,1% The situation remains as with the previous report, except the growth outlook has been down grated to 0,1% for the year. The rising cost of reliable power supply, poor labour relations, limited access to transport and other economic infrastructure, rising production costs, as well as an increase in policies which are unpredictable and seek to intervene in the economy, will weigh heavily on business and consumer confidence and curb growth in. Already the Reserve Bank reduced short term potential growth to between -0,2% to 0,1% as a result of global and local trade contractions. Inflation has remained stable in the last 6 months from a high of 7,2% in February, easing to 6,1% for June. This is a result of reduction in fuel cost, but Eskom tariffs and increase labour cost keeps putting pressure on rising inflation in the industrial sector. Potential ratings downgrade add to the pressure of maintaining a stable forecast. 4,6% 2015 Global Growth 6,1% The World Bank is revising its global growth forecast down to 2,4% from the 2,9% pace projected in January. The move is due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows. Commodity-exporting emerging market and developing economies have struggled to adapt to lower prices for oil and other key commodities. But the picture however still looks weak on the currency side for emerging markets. USA inflation is still below 2% that there is an indication of small interest rate hikes in the future. With the American economy looking stronger and China looking weak there will be a renewed interest by investors in traditional markets. Africa hopes to benefit from expansion by American and European investors and the takeover of SAB Miller is one such example. Industrial Market Analysis June Western Gauteng Cape Colliers & KwaZulu-Natal International South Colliers Africa International South Africa

7 The Rand was volatile against the US Dollar in the first half of this year, breaching the R14.00 level to reach lows last seen in Weakness was mainly in response to negative budget reporting, however the week in which the most severe fall in currency was recorded coincided with severe plummet of commodity prices. The Rand looked slightly more promising against the Euro, and gained marginally in the last half as a result of quantitative easing in the Euro area. In the medium term, trajectory of the Rand will mainly be dependent on global monetary policy events, the biggest being the timing of the normalisation of US interest rates. Prime bank lending rates ended the half at 7%. The South African Reserve Bank (SARB) raised repurchase interest rates from 6.75% at last quarter close. It signalled however that a further raise (July) may be coming soon forced by an increase in inflationary pressures. Global economic growth was slow and uneven in the first half, with expansion continuing but at a fragile and uneven pace. Prospects in Europe (excluding Brittan) and the US improved, the US momentum indicates slow growth. Developing countries still experience difficult conditions, hurt by weak global trade. In China, further signs of slower growth prompted the government to set a lower GDP growth target of 6,7% for, after maintaining 7.5% for the last three years (and expect it to reduce). The International Monetary Fund (IMF) downgraded its global GDP growth forecast for the next two years, following similar moves by the World Bank and the Organisation for Economic Growth and Development (OECD). Industrial Market Analysis June Western Cape & KwaZulu-Natal Colliers International South Africa Q4 YEAR % GDP Growth Forecasts Global GDP Growth Forecasts China GDP Growth Forecasts Q1 (YEAR) 2,4 % 6,7 %

8 Supply Western Cape The key nodes in the Western Cape industrial market over the last six months included Montague Park, Montague Gardens, Epping, Blackheath, Atlantic Hills and Rivergate. Airport Industria in particular was a node that saw high demand with low levels of supply. Overall, the market saw supply reduce somewhat. Mid-sized A-Grade units in particular were scarce. In some instances, developers were caught offguard, thereby creating a lag in new developments. Contributing to this was the lack of available land in suitable nodes at reasonable prices. Noteworthy completions to date over the last six months in the Western Cape included, but were not limited to: Wasteman (19,300m², Saxdowne Industrial Park) Montague Business Park (15,000m²) Form-Scaff (11,111m², Saxdowne Industrial Park) Range Industrial Park (9,220m², Blackheath) KwaZulu-Natal From a supply perspective, the key nodes in the KwaZulu-Natal industrial market over the last six months included Outer West (Westmead / New Germany) and Durban South (Mobeni / Jacobs / Prospecton). Outer West (Pinetown, Westmead and New Germany) have in particular been very active. High land costs within the newer industrial precincts continued to place pressure on asking rentals within those nodes and drove renewed interest to the older established nodes whom is deemed to offer better value. Interest also gained traction in the Cato Ridge / Hammersdale nodes, with large nationals proposed distribution centres. Noteworthy completions to date over the last six months in KwaZulu-Natal included, but were not limited to: Cargo Embassy (25,992m², The Cornubia Industrial and Business Estate) Trafford Park refurbishment (21,000m², Pinetown/Westmead) Blinds Mart (8,279m², The Cornubia Industrial and Business Estate) Digistics (7,110 m², The Cornubia Industrial and Business Estate) Industrial Market Analysis June Western Cape & KwaZulu-Natal Colliers International South Africa

9 Supply Please refer to Fig 1 below for a selection of ongoing industrial projects, both planned and under construction, in the Western Cape. Aside from the Bridge City and Cornubia Industrial & Business Estate (CIBE) schemes which are covered in further detail below on the following page, there are no other significant, completed industrial developments for the last six months to report for the KwaZulu-Natal region. Fig 1. SELECTED INDUSTRIAL DEVELOPMENTS UNDER CONSTRUCTION AND PLANNED Development Status Completion Location Size Montague Business Park Planned 105,000m² due for completion Q4 Montague Park 120,000m² total Greenfields Industrial Park Under Construction Q4 Airport Industria 22,000m² Rivergate Industrial Park Planned Q3 Cape Town 20,000m² Montague Business Park Under Construction TBC Montague Park 19,840m² Montague Business Park Under Construction Q3 Montague Park 14,000m² *Fig 1 above shows a selection of the Western Cape industrial developments currently under construction and planned. This is a sample list, and not fully indicative of the market as a whole. As aforementioned, there are two significant long-term Tongaat Hulett developments with worth noting in KwaZulu- Natal - Bridge City and Cornubia Industrial & Business Estate (CIBE). Industrial Market Analysis June Western Cape & KwaZulu-Natal Colliers International South Africa

10 Featured Industrial Developments Bridge City Located within the Inanda, Ntuzuma and Kwamashu (INK) region, Bridge City is a 60 hectare development which started in 2008 (estimated completion is 2020), and it sees the conversion of an old, unsold industrial estate into a new Town Centre in a previously underdeveloped region. The scheme is a joint venture between Tongaat Hulette and ethekwini Municipality, and is based on a successful inter-model facility that includes the Bus Rapid Transport (BRT) and a Rail Station. Bridge City is very well located so as to facilitate convenient access. The entire development includes a mixed-use and residential Town Centre, as well as a 170,000m² Business Estate (a greenfields development), which is expected to attract public and private investment totaling R10 billion, with the Business Estate set to transform the surrounding communities of Inanda, Ntuzuma and KwaMashu (INK). The Business Estate is expected to attract a wide variety of investors and is ideal for distribution centres and logistics companies, building materials retailers, fast moving consumer goods wholesalers and retailers, as well as light industrial operations. With the rail line now in operation, there has been a significant increase in interest in Bridge City, with Tongaat Hulett having sold three sites in the soon-to-be-completed Estate over the past year. A number of new deals are also due to conclude in both the Town Centre and Business Estate over the next few months The Cornubia Industrial and Business Estate (CIBE) The Cornubia Industrial and Business Estate (CIBE) is situated in the northwest corner of Cornubia, adjacent to Ottawa, and is highly accessible from the N2, M41 and R102. CIBE comprises an 800,000m² light industrial platform in total. It is an environment-friendly and eco-sensitive industrial development, that will include warehousing, distribution and service oriented businesses and offices. To date approximately 720,000m² has been sold to entities with varied business interests (property funds, property developers, owner occupiers, etc.) Tongaat Hulett estimates that by Q3, they would have sold the remaining 80,000m². Over the past six months, the following key milestones have been achieved at CIBE: A combined bulk of approximately 40,474m² was taken up by end users with about 37,000m² of that taken by one large manufacturer Nine purchasers representing 156,207m² of the combined bulk commenced with construction Of the total bulk sold, 66,170 m² included multiple warehousing / mini factories with the balance split between refrigerated warehousing, warehousing and light manufacturing For the majority of the lots currently under construction, completion has been reached.

11 Demand Western Cape There was a pick-up in leasing activity in the Western Cape over the last six months, when compared to the same period a year ago. Newly vacant space was re-let quickly, and an increased level of demand is reported. Notable new deals and renewals in the Western Cape from the last six months include, but were not limited to: Value Logistics Joostenbergvlakte ±18,000m 2 Cipla Medpro Rivergate Park ±16,800m 2 Ellerines Distribution Centre Epping ±16,500m 2 Tiger Brands Range Industrial Park ± 9,000m 2 Goodenough Epping 2 ± 7,983m 2 Range Industrial Park Blackheath ± 4,400m 2 Golf Air Park Airport Industria ± 730m² X 2 CTX Business Park Airport Industria ± 651m 2 Fourwinds Montague Gardens ± 4,950m 2 KwaZulu-Natal Over the last six months in KwaZulu-Natal, there was an ongoing shortage of quality buildings in key nodes. A high level of demand was also seen for larger warehouse space, of between 2,000m² 10,000m². in particular. Notable new deals in KwaZulu-Natal from the last six months include, but are not limited to: 25 Prospecton Road Prospecton 6,000m 2 20 Rustic Close Briardene 5,500m 2 Durban Harbour 5,000m 2. Industrial Industrial Market Analysis Market Analysis June June Western Gauteng Cape & KwaZulu-Natal Colliers International Colliers South International Africa South Africa

12 Vacancies These vacancy insights are based on Investment Property Databank s (IPD) most recent data report as published by the South African Property Owner s Association (SAPOA) in April. National Snapshot At the end of 2015/early, the national industrial vacancy rate was recorded at 3.5%. While this is virtually unchanged from the 3.4% recorded 12 months prior, it is down significantly from the 6% level of the 2009 / 2010 period. Manufacturing-focused property saw significant increases in vacancies when compared to warehousing and standard units. Warehouse property however, driven by strong growth in consumer spending, had the lowest vacancy rate of the main industrial segments with a rate of 1.9% recorded. While the industrial sector vacancy rate continued to trend at six year lows there were some questions around the demand-side economic fundamentals underpinning the sector. Industrial manufacturing volumes remained constrained while the future growth potential of the sector also depends on improvements in efficiency measures like capacity utilisation and unit labour costs. Unit labour costs, driven by stagnant labour productivity, a largely unionised labour force together with a weakening currency, remain a concern and could influence the investment decisions of multinational manufacturing operations. Looking into industrial property by box size revealed that there was more space available in larger GLA properties. ln saying that, smaller industrial properties saw the highest increases in vacancy during over the last six months, and also saw their basic rental growth come under more pressure relative to larger sized premises. Western Cape When looking at the Western Cape on a nodal level so far as vacancies are concerned, Epping/Airport Industria / Langa had the highest recorded rate at 5.4%. The node with the lowest vacancy rate in the Western Cape was Kensington/ Observatory with a rate of 0.1% recorded over the last six months. Milnerton/ Montague Gardens also had a vacancy rate of below 1% for the same period. KwaZulu Natal When looking at KwaZulu-Natal on a nodal level so far as vacancies are concerned, Pinetown had the highest recorded rate at 4,3%. The node with the lowest vacancy rate in KwaZulu-Natal was Durban North with a rate of 0.16% recorded over the last six months. Overall, KwaZulu-Natal had the lowest vacancy rates nationally. NATIONAL INDUSTRIAL VACANCY RATE HIGHEST VACANT WESTERN CAPE NODES (Ottery / Landsdown) LOWEST VACANT WESTERN CAPE NODES (Kensington / Observatory) HIGHEST VACANT KZN NODES (Northgate / Umgeni) LOWEST VACANT KZN NODE (Durban North) 4.0% 5.0% 0.1% 4.0% 0.16% Industrial Market Analysis June Western Cape & KwaZulu-Natal Colliers International South Africa

13 Rental Rates National Snapshot The industrial sector's base rental continued to grow well above inflation - adding further proof to the notion that industrial demand outstripped supply. A base rental of 6.7% year on year for the period ending December 2015, resulted in a reasonable capital growth of 3.9%. Combining the capital growth with a strong income return of 9.9% led to the industrial sector outperforming both the retail & office sectors on a total return basis. The fact that the full base rental growth didn't filter through to capital growth meant that valuers took a slightly more bearish view of the sector's future earnings. All four of the main industrial segments recorded above inflation growth in base rental, with light manufacturing property recording an increase of 8.7% year-on-year despite an uptick in vacancy. This illustrated the importance of nodal selection in the current environment. Industrial properties smaller than 2,500m² were the only ones to report negative base rental growth. It can be assumed that this segment was experiencing negative rent reversions, which was not surprising given the state of the economy and the fact that smaller tenants were more vulnerable to exchange rate movements. While industrial property with gross lettable area of larger than 10,000m² had the highest vacancy rate among the size segments, it also delivered the highest basic rental growth, which again underlined the importance of nodal selection. Western Cape & KwaZulu-Natal The majority of both the Western Cape and KwaZulu-Natal industrial nodes saw marginal improvements in growth momentum over the last six months. Industrial Market Analysis June Western Cape & KwaZulu-Natal Colliers International South Africa

14 Listed Property Winds of Change Blow East A stagnant economy and a depreciating currency has ignited a new movement for the listed property sector to look East for better pastures. Particularly Central and Eastern Europe have seen extensive investments from the SA listed property sector. Targeted territories are Poland, Croatia, Montenegro, Romania, Czechoslovakia and Serbia. A major driver of this move is the ability to earn income in Forex but also the ability to borrow at very favorable rate in Euro and other currencies. Typically finance margins run at rates between 2, 5-4% and yields are recorded between 6 10% (Poland 6% & Croatia 10%). This movement was led by NEPI (New Europe Property Investments) an associate of Resilient which got a foothold in to Eastern Europe during 2008, and are currently a major stakeholder in the Romanian retail sector. This particular counter has appreciated of a rate of 850% from R 18,90 in April 2009 (listing price) to R 179,24 in May. That equates to 38% average growth per annum. Rockcastle another affiliate of NEPI has recently acquired a portfolio of retail outlets in Poland. Accelerate has announced its intention to acquire a portfolio of retail property in Poland and Czechoslovakia. Tower fund acquired various properties (Commercial and Retail) in Croatia during Hyprop acquired 2 malls in Serbia and Montenegro early February. March, Redefine took a 75% stake in a portfolio of 18 retail and commercial properties in Poland, valued at 1,2 billion which is the largest foreign transaction out of South Africa to date. It is also the largest property transaction in Poland s commercial history. In the interim Redefine has taken onboard 2 additional local investors in the form of Moolman Group and Pivotal Property fund. Sirius Real Estate has further acquired 2 business parks in Germany to add to their exciting portfolio. Industrial Market Analysis June Western Cape & KwaZulu-Natal Colliers International South Africa

15 Market Prognosis Western Cape Looking ahead over the next six months, the Western Cape industrial market is likely to see increased demand for good quality space. For the moment there is a shortage of stock in the 800m² 1,500m² bracket in particular. This has been frustrating as the demand is there, and supply will only increase during. Power outages are a continued concern, with the manufacturing sector being worst affected. For those tenants looking to expand from old existing facilities in the short to medium term, the increase in rates, some of which have almost doubled, is likely to present a serious challenge. Land parcels are few and far between, with the exception of the north. The shift to outlying areas such as Montague Park, Rivergate, and Atlantic Hills will continue. The main reason for the move to the aforementioned nodes, is the perception that traffic congestion is less intensive in the East. The industrial areas adjacent to the N2 freeway have taken strain due to the unrest and protests, although Blackheath is likely to continue to do well despite this. Industrial Market Analysis June Western Cape & KwaZulu-Natal Colliers International South Africa A large tract of land in the Brackenfell area has been recently acquired by a leading property national fund in a joint venture, and the market is interested to see how industrial development performs at a later stage, once construction completes. KwaZulu-Natal So far as the the KwaZulu-Natal industrial market it concerned, it has struggled to achieve proper growth and will continue to do so in the coming months on the back of declining commodities prices and less imports. Demand for quality premises will continue to outstrip supply going forward, and asking rentals will be maintained but not much growth is expected. Property owners will continue to try and extract more value out of their existing properties and there will be further rejuvenation of existing older properties, in particular in the south and west of KwaZulu-Natal. The areas of Cato Ridge and Hammersdale will provide further opportunities for new owners and tenants who are able to take advantage of lower land prices. With a proposed development of a logistics hub by Transnet, which will then enable them to operate directly on the N3 corridor. Sources: Business Day Colliers International South Africa GlobalRates.com Growthpoint Properties Intaprop Zenprop Property Holdings Investment Property Databank (IPD) Nedbank Redefine Properties Renico Construction (Pty) Ltd South African Property Owners Association (SAPOA) South African Reserve Bank (SARB) Tongaat Hulett Trading Economics

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